Apple lends hand to Google against regulators

April 9, 2010

Apple has just lent a hand to Google in the search giant’s increasingly tense relationship with regulators. The U.S. Federal Trade Commission worries Google’s proposed purchase of AdMob may extend its dominance of internet search advertising into the burgeoning mobile Internet space. Apple’s latest iPhone operating system will give the government less to worry about.
The FTC’s concern is understandable. Google could well use the profits for a near-monopoly in its original business to muscle into the promising mobile advertising market. That business is currently small — total spending of around $400 million in 2009 was less than 2 percent of Google’s revenues. But research outfit IDC estimates $1.9 billion of revenues by 2012.

Yet the tech trade creates a dilemma for the FTC and other antitrust regulators. As the long fight with Microsoft has demonstrated, once a monopoly is established, its huge economies of scale make conventional remedies ineffective. Officials need to strike before the competitive barriers are too high to tear down.

But when the barriers aren’t high, it’s hard for regulators to prove they will be. The FTC isn’t getting much help from advertisers, who appear mostly unconcerned about the Google-AdMob deal.

Application developers for mobile phones might be a more promising avenue. They could be hurt if Google owned AdMob, which controls about a third of the market for placing ads in mobile applications and web pages. Since apps increasingly determine the choice of phones, and developers depend on app ad revenues, Google might be able to use AdMob to pressure developers to favor its own phone operating system over Apple’s or Microsoft’s.

But Apple just made the FTC’s job harder. Its newest operating system for the iPhone makes it easy for developers to put advertising directly into applications. Apple is playing down the threat — “just babes in the woods” in advertising, according to Steve Jobs — but it already has the look of a powerful competitor. The iPhone share of the U.S. smartphone market is about a quarter, and the share of mobile data traffic is higher.

Apple may be offering a helping hand to Google against government intervention, but it has the look of a clenched fist.

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